"Past, Present and Future of Economic Transformation in Africa: The Role of Agriculture", DSG Division Retreat, February 18, 2014

1. Past, Present and Future of
Economic Transformation in
Africa
The Role of Agriculture
Xinshen Diao and Margaret McMillan
DSGD 2014 retreat
He (the master-economist) must study the present in the light
of the past for the purposes of the future - from John Maynard
Keynes

2. Session Overview
• Present research questions/agenda (we don’t have lots of answers!)
• Present evidence on Africa’s past and current growth
• Present a theoretical framework that helps us to think about the
questions
• Present clues about Africa’s future growth
• Ask you to think about drivers of Africa’s future growth
- To preview, Rodrik and others have written about manufacturing as the driver
of structural change but we want you to think about alternatives and/or
complements to manufacturing and the role of agriculture

3. Our Questions
• Is Africa’s current growth different from its past?
• Agriculture vs. Non-Agriculture
• Fundamentals, Modern Activities, Structural Change
• Is Africa’s current growth sustainable?
• Commodity Prices, Foreign Aid, Natural Resources?
• Structural Change?
• What will Africa’s future growth look like?
• East Asian model led by light manufacturing?
• Alternative model led by commercial agriculture?
• Which activities can be modernized relatively quickly?

4. -8
-6
-4
-2
0
2
4
6
8
10
Angola
Chad
Ethiopia
Ghana
Mozambique
Nigeria
Rwanda
Tanzania
Uganda
9countries
SSA-ZAF
Average Annual GDP per capita growth rates (%)
1980-1989 1990-1999 2000-2012
Source: Own calculations using data from WDI 2014
Africa’s Current and Past Growth: Current Growth is Rapid
• 37 Sub-Saharan African
countries with data
available are included in our
database
• SSA-ZAF are for the 36
countries without South
Africa; the region’s current
GDPpc growth rate of 3.2%
per year is at recorded high
• The fast growing countries
are chosen according to
their growth performance
in 2000-2012. There are 9
such countries with growth
rate at least 4% per year in

5. Africa’s Current and Past Agricultural Productivity Growth: Current
Growth is Rapid
-7
-5
-3
-1
1
3
5
7
Angola
Chad
Ethiopia
Ghana
Mozambique
Nigeria
Rwanda
Tanzania
Uganda
9countries
SSA-ZAF
Average Annual Growth Rates in Agricultural Output per worker (%)
1961-1969 1970-1979 1980-1989 1990-1999 2000-2011• Africa’s current
agricultural labor
productivity growth
rate is also at
recorded high –
1.2% per year in
2000-2011
• In five of the nine
fast growing African
countries, agricultur
al labor productivity
growth rate more
than doubled the
region’s average
Source: Own calculations using data from Nin-Pratt 2014

6. A Framework for Thinking About Growth (based on
Rodrik (2013))

7. Channel (A): The conditional convergence channel

8. Channel (B): The unconditional convergence
channel

9. Channel (C): The structural change channel

10. Alternative paths to high growth? (Dani
Rodrik 2014)

11. How Much of Africa’s Recent Growth is Due
to Improvements in Fundamentals? (Channel
A)
• Not sure yet exactly how to quantify this.
• However, we have evidence that there have been significant
investments in human capital and infrastructure and that the quality
of governance is improving
• Agriculture is catching up with its historical trends, but for agriculture
to be a driver of growth, much more investment in fundamental
capabilities are needed

12. Significant Improvement in the Quality of
Governance
12
Source: Author's calculations using data from the Polity IV Project and The World Bank's WDI dataset.
1. Graph shows a weighted average of the polity2 score (weighted by population) in the Polity IV dataset. The polity2 score is the revised combined polity score which, is the result of substracting the
"autoc" score from the "democ" score. It scores how democartic or autocratic a regime is and ranges from -10 (strongly autocratic) to +10 (strongly democratic).
2. Solid bright lines are population-weighted averages of the individual country scores for each cohort: the 1960 cohort (red), 1965 cohort (yellow), 1975 cohort (green), and the 1990 cohort (blue).
3. Solid light lines are population-weighted averages of the individual country scores for 10 random subsamples of 50% of the countries in each cohort. Dashed light lines are population-weighted averages
of the individual country scores for 10 random subsamples of 25% of the countries in each cohort.
4. Countries included are: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo Brazzaville, Congo Kinshasa, Ethiopia, Gabon, Ghana, Guinea, Ivory Coast, Liberia, Madagascar, Mali,
Mauritania, Niger, Nigeria, Senegal, Somalia, South Africa, Sudan, Togo, Rwanda, Sierra Leone, Tanzania, Burundi, Uganda, Kenya, Malawi, Zambia, Gambia, Botswana, Lesotho, Equatorial Guinea,
Mauritius, Swaziland, Zimbabwe, Guinea-Bissau, Angola, Cape Verde, Comoros, Mozambique, Namibia, Eritrea, and South Sudan.

13. 13
-.1
0
.1.2.3.4
Gabon
Madagascar
Zimbabwe
Niger
Mozambique
BurkinaFaso
Malawi
Coted'Ivoire
Ethiopia
Cameroon
Ghana
Tanzania
Uganda
Mali
Nigeria
Senegal
Zambia
Kenya
Rwanda
Chad
Guinea
Young (age 16 to 24),male,rural individuals. Attending School
Big Increases in Investment in Human Capital in Rural
Areas
2000-2010
Source: Author's calculation using DHS data.
Graph shows the predicted 10-year change in the share of individuals currently attending school for African countries in our sample. Changes correspond to the coefficient on the final year dummy of a
country specific regression of occupation (in this case, whether individual is attending school) on time dummies with the first year excluded. These changes were then annualized and multiplied times ten to
get the predicted 10-year change.

14. 1961-1989 1990-2011
Max. gross
output per
worker per year
(2004-2006
constant $US)
Year
Max. gross
output per
worker per year
(2004-2006
constant $US)
Year
Angola 550 1971 657 2011
Chad 653 1963 546 1998
Ethiopia 338 1970 312 2011
Ghana 905 1974 1,104 2010
Mozambique 329 1973 260 2011
Nigeria 989 1970 1,522 2006
Rwanda 431 1962 294 2006
Tanzania 408 1979 476 2011
Uganda 897 1970 620 2002
Total 9 countries 612 1970 669 2010
SSA excluding
South Africa 606 1970 663 2006
[VALUE]
BWA
GHA
[CELLREF]
NER
MWI
SLE
400
500
600
700
800
900
1,000
1,100
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
AgriculturalOutputPerWorker(2004-06constant$)
All countries-ZAF 1960s growth path
Max. 1960s 2000s growth path
Level of Africa’s Agricultural Productivity is Catching up with It’s Historical Trends, But ….
3% annual growth required to catch up with the
historical trends of African agricultural productivity
Source: Own calculations using data from Nin-Pratt 2014.
1.1% annual growth rate
1.2% annual growth rate
3% annual growth rate
Current level of agricultural labor productivity is still lower than
the past in many African countries

15. How Much of Africa’s Recent Growth is
Due to Structural Change? (Channels B
and C)• According to McMillan, Rodrik and Verduzco (2013), roughly 1 percent of Africa’s
recent growth is due to structural change.
• HOWEVER, it is not the kind of structural change that has traditionally driven
growth. The bulk of the structural change that we see in Africa is driven by
movements out of agriculture and into mostly informal services.
• IMPORTANTLY, this kind of structural change is part of what has made Africa’s
recent growth more broad based.
• Still, some observers worry about it because productivity is still relatively low in
the kinds of services that are expanding and may even be declining.

16. What About Africa’s Future Growth?
Fundamentals make us optimistic about Africa’s future:
• Agriculture is becoming more business oriented – examples?
• The environment is starting to nourish entrepreneurial activity
• Human capabilities are improving – Young are more educated and are taking risks
But more rapid growth requires the expansion of ‘escalator’ activities:
• The activities must involve large numbers of people
• The activities must have the potential for long term productivity gains (as opposed to one off level effects)
• Labor intensive manufactures (e.g., Huajian investment in the shoe factory in Ethiopia) are often seen as
escalator activities, particularly when they have strong linkages with domestic economy (e.g., the linkages of
shoe factories to livestock sector)

17. What’s The Potential for Manufacturing in Africa?
1. Labor-intensive manufacturing can be developed in a poor country without
establishing the entire industry supply chain (e.g., garment, shoe and other
assembly activities) – Question: why it has not come to Africa in a scale seen in
Bangladesh and Cambodia?
Labor constraint? Capital constraint?
• If no cheap food and no cheap labor, countries can’t have manufacturing but many African
countries have urbanized more rapidly than the poor Asian countries (rural population is 80%
of total population in Cambodia)
• Traditional argument about Agriculture’s constraint on cheap labor supply to manufacturing seems
irrelevant today
• However, labor cost in manufacturing matters: Cambodian union supported by the opposition party
had a failed strike recently to ask double minimum wage rate to $160 a month (Economist); while in
Kigali, Rwanda, for a Chinese firm to open a factory there, it was asked to pay $150-$200 a month to
a newly untrained worker
• Lack of capital? However, many emerging economies (China, India, Turkey, …) are looking for
new locations for their labor-intensive manufactures
2. Agro-processing has strong linkage effects and seems to be able to serve as an
escalator activity in Africa. However, …
• Tomato processing factories failed to operate in Ghana due to lack of enough low-cost tomato
at the right quality and supplied at the right time (Shashi’s case study)
• Many agro-processing firms cannot fully operate in Africa, complaining lack of materials
(Sutton, 2012)

18. What About Agriculture?
• The current level of labor productivity in African agriculture is just
slightly higher than its historical high in the 1970s
• To return to the 1960-1970 path (catching up with its own
growth), African agricultural labor productivity would be 45% higher
than its current level
• Required annual growth rate to bring Africa back to its historical trend is 3%
(similar as in South Africa) instead of 1.2% as in 2000-2011
• The productivity gap with the world average or the other regions is
very high – potential for growth through catching up with others

19. We Would Like Your Input
• How will agriculture contribute to future growth in Africa?
• Level Effects
• Escalator Activities (large numbers of people, significant gap between
traditional and modern technology, potential for sustained growth)
• Do you have any evidence that this is already happening?
• What needs to happen to make these activities possible?
• Government?
• Private Sector?
• Civil Society?